I’ve been writing about nullification for years. Nullification, in short, is the principle that any law passed without proper authority is not a valid law and is not enforceable on the people. In the US, the Constitution carefully defines the authority the federal government and acknowledges that whatever powers were not delegated expressly to the government are reserved by the states. Article VI, Section 2 (the Supremacy Clause) states that the Constitution and all laws passed in pursuance to it are supreme law. The reverse is therefore implied and true – that all laws NOT passed in pursuance to powers delegated by the Constitution are not supreme. The states therefore have no obligation to recognize or enforce them.

Every further new high in the price of Bitcoin brings ever more claims that it is destined to become the preeminent safe haven investment of the modern age — the new gold.

But there’s no getting around the fact that Bitcoin is essentially a speculative investment in a new technology, specifically the blockchain. Think of the blockchain, very basically, as layers of independent electronic security that encapsulate a cryptocurrency and keep it frozen in time and space — like layers of amber around a fly. This is what makes a cryptocurrency “crypto.”

That’s not to say that the price of Bitcoin cannot make further (and further…) new highs. After all, that is what speculative bubbles do (until they don’t).

Bitcoin and each new initial coin offering (ICO) should be thought of as software infrastructure innovation tools, not competing currencies. It’s the amber that determines their value, not the flies. Cryptocurrencies are a very significant value-added technological innovation that calls directly into question the government monopoly over money. This insurrection against government-manipulated fiat money will only grow more pronounced as cryptocurrencies catch on as transactional fiduciary media; at that point, who will need government money? The blockchain, though still in its infancy, is a really big deal.

While governments can’t control cryptocurrencies directly, why shouldn’t we expect cryptocurrencies to face the same fate as what started happening to numbered Swiss bank accounts (whose secrecy remain legally enforced by Swiss law)? All local governments had to do was make it illegal to hide, and thus force law-abiding citizens to become criminals if they fail to disclose such accounts. We should expect similar anti-money laundering hygiene and taxation among the cryptocurrencies. The more electronic security layers inherent in a cryptocurrency’s perceived value, the more vulnerable its price is to such an eventual decree.

Bitcoins should be regarded as assets, or really equities, not as currencies. They are each little business plans — each perceived to create future value. They are not stores-of-value, but rather volatile expectations on the future success of these business plans. But most ICOs probably don’t have viable business plans; they are truly castles in the sky, relying only on momentum effects among the growing herd of crypto-investors. (The Securities and Exchange Commission is correct in looking at them as equities.) Thus, we should expect their current value to be derived by the same razor-thin equity risk premiums and bubbly growth expectations that we see throughout markets today. And we should expect that value to suffer the same fate as occurs at the end of every speculative bubble.

It seems that anyone on Planet Earth with a pulse now is familiar with the situation at Google in which a male engineer sent a 10-page memo over the company’s internal listserv in which he questioned some of Google’s “diversity” policies. As most of us expected when the story became public, Google fired the employee, citing “incorrect” thoughts about “gender” as its justification.

Not surprisingly, we have seen people on both the Right and the Left shooting missives at each other via social media and the usual journalistic outlets. From the left, not surprisingly, the engineer who wrote the memo, James Daramore, is a slimy bigot who got what was coming to him. Conservatives see Daramore’s memo as being reasonable, but that Google is so Politically-Correct that even a slight deviation from the path of leftist orthodoxy cannot be tolerated. Even some people who consider themselves to be politically and socially liberal are critical of Google’s decision to fire Daramore.

We like to think of modern high-technology firms in the famed Silicon Valley such as Google, Apple, and Twitter as representing much that is good about our present day. These companies are full of young, hard-working people who are near-genius in their capacity to understand technology and how it can be used entrepreneurially. As I see it, one of the reasons that federal economic policies (not to mention the predations of the Federal Reserve System) have not created mass destruction of the economy has been the presence of tech-savvy entrepreneurs that continue to foil even the best (or, more appropriately, worst) efforts of politicians and regulators to block economic progress.

Furthermore, we know throughout history that private enterprise often undermines things like racism and sexism (despite the claims from socialists that capitalism is the source of All Bad Things) and that private property, prices, and free exchanges have tied people together that keep politicians from successfully tearing things apart. As economists like Thomas Sowell have noted, it has been governments that have prevented the free association of people who seek to engage in market behavior to better their lives.

The Bank of International Settlements (BIS) has warned again of the collateral damages of extremely loose monetary policy. One of the biggest threats is the rise of “zombie companies.” Since the “recovery” started, zombie firms have increased from 7.5% to 10.5%. In Europe, Bof A estimates that about 9% of the largest companies could be categorized as “walking dead.”

What is a zombie company? It is — in the BIS definition — a listed firm, with ten years or more of existence, where the ratio of EBIT (earnings before interest and taxes) relative to interest expense is lower than one. In essence, a company that merely survives due to the constant refinancing of its debt and, despite re-structuring and low rates, is still unable to cover its interest expense with operating profits, let alone repay the principal.

This share of zombie firms can be perceived by some as “small.” At the end of the day, 10.5% means that 89.5% are not zombies. But that analysis would be too complacent. According to Moody’s and Standard and Poor’s, debt repayment capacity has broadly weakened globally despite ultra-low rates and ample liquidity. Furthermore, the BIS only analyses listed zombie companies, but in the OECD 90% of the companies are SMEs (Small and Medium Enterprises), and a large proportion of these smaller non-listed companies, are still loss-making. In the Eurozone, the ECB estimates that around 30% of SMEs are still in the red and the figures are smaller, but not massively dissimilar in the US, estimated at 20%, and the UK, close to 25%.

The rise of zombie companies is not a good thing. Some might say that at least these companies are still functioning, and jobs are kept alive, but the reality is that a growingly “zombified” economy is showing to reward the unproductive and tax the productive, creating a perverse incentive and protecting nothing in the long run. Companies that underperform get their debt refinanced over and over again, while growing and high productivity firms struggle to get access to credit. When cheap money ends, the first ones collapse and the second ones have not been allowed to thrive to offset the impact.

Low interest rates and high liquidity have not helped deleverage. Global debt has soared to 325% of GDP. Loose monetary policies have not helped clean overcapacity, and as such zombie companies perpetuate the glut in many sectors, driving down the growth in productivity and, despite historic low unemployment rates, we continue to see real wages stagnate.

The citizen does not benefit from the zombification of the economy. The citizen pays for it. How? With the destruction of savings through financial repression and the collapse of real wage growth. Savers pay for zombification, under the mirage that it “keeps” jobs.

Zombification does not boost job creation or buy time, it is a perverse incentive that delays the recovery. It is a transfer of wealth from savers and healthy companies to inefficient and obsolete businesses.

On the eve of the federal convention, and following its adjournment in September of 1787, the Anti-Federalists made the case that the Constitution makers in Philadelphia had exceeded the mandate they were given to amend the Articles of Confederation, and nothing more.

The Federal Constitution augured ill for freedom, argued the Anti-Federalists. These unsung heroes had warned early Americans of the "ropes and chains of consolidation," in Patrick Henry's magnificent words, inherent in the new dispensation.

At the very least, and after 230 years of just such "consolidation," it’s safe to say that the original Constitution is a dead letter.

The natural- and common law traditions, once lodestars for lawmakers, have been buried under the rubble of legislation and statute. However much one shovels the muck of lawmaking aside, natural justice and the Founders' original intent remain buried too deep to exhume.

Consider: America’s Constitution makers bequeathed a central government of delegated and enumerated powers. The Constitution gives Congress only some eighteen specific legislative powers. Nowhere among these powers is Social Security, civil rights (predicated as they are on grotesque violations of property rights), Medicare, Medicaid, and the elaborate public works sprung from the General Welfare and Interstate Commerce Clauses.

There is simply no warrant in the Constitution for most of what the Federal Frankenstein does.

The welfare clause stipulates that "Congress will have the power … to provide for the general welfare." And even though the general clause is followed by a detailed enumeration of the limited powers so delegated; our overlords, over decades of dirigisme, have taken Article I, Section 8 to mean that government can pick The People's pockets and proceed with force against them for any perceivable purpose and project.

Today, Federal courts are in the business of harmonizing law across the nation, rather than allowing communities to live under laws they author, as guaranteed by The Tenth Amendment to the Constitution:

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

It was over three years ago, back in May 2014, when we wrote "How Bots Manipulated The Price Of Bitcoin Through "Massive Fraudulent Trading Activity" At MtGox" in which we first demonstrated one of the more striking observed "bot-driven" bitcoin manipulation schemes, in this case related to the infamous collapse of the now defunct Mt.Gox bitcoin exchnage.

As we wrote at the time, a number of traders began noticing suspicious behavior on Mt. Gox. Basically, a random number between 10 and 20 bitcoin would be bought every 5-10 minutes, non-stop, for at least a month on end until the end of January, by what appeared to be two algos, named later as "Willy" and "Markis." Each time, (1) an account was created, (2) the account spent some very exact amount of USD to market-buy coins ($2.5mm was most common), (3) a new account was created very shortly after. Repeat. In total, a staggering ~$112 million was spent to buy close to 270,000 BTC – the bulk of which was bought in November.

"So if you were wondering how Bitcoin suddenly appreciated in value by a factor of 10 within the span of one month, well, this is why. Not Chinese investors, not the Silkroad bust – these events may have contributed, but they certainly were not the main reason. But who did it? and why?"

When Janet Yellen testified before the House Financial Services Committee last month, she faced grilling on a topic that hasn’t received enough mainstream attention: the interest being paid on excess reserves at the Fed. While the topic has come up occasionally since the program began in 2008, it is worth noting that Yellen was pushed by both Jeb Hensarling, the committee chairman, and Andy Barr, the chairman of the Monetary Policy Subcommittee. While ending this taxpayer subsidy to Wall Street is important, it’s also important to understand the dangers posed by allowing these excess reserves to be lent out of major financial institutions.

To understand what is at stake, recall back to 2008 when many Fed observers were concerned about the inflation dangers posed by the policies of the Bernanke Fed. In a six year period, the base money supply increased over four-fold. Understandably, this sparked grave fears about the devaluation of the dollar — fears that, to date, have yet to really present themselves in the CPI. While stock prices, real estate prices, and other types of asset-price inflation are likely being fueled by this monetary policy, the Fed isn’t facing political pressure from inflation concerns — but rather being grilled by misinformed legislators for not reaching their (unfortunate) 2% inflation target.

According to popular view people accept money because of a government decree.1 A government decree it is argued makes a particular thing accepted as a general medium of exchange. But, does it make sense?

Demand for a good arises from its perceived benefit. For instance, people demand food because of the nourishment it offers them. It is different with money people demand it not for direct use in consumption but in order to exchange it for other goods and services.

Money is not useful in itself, but because it has an exchange value, it is exchangeable in terms of other goods and services. Money is demanded because the benefit it offers is its purchasing power (i.e., its price). Consequently, for something to be accepted as money, it must have a pre-existing purchasing power, a price. So how does a thing that the government proclaims will become the medium of the exchange, acquire such a purchasing power, a price?

In his writings Carl Menger raised doubts about the soundness of the view that the origin of money is government proclamation. According to Menger,

An event of such high and universal significance and of notoriety so inevitable, as the establishment by law or convention of a universal medium of exchange, would certainly have been retained in the memory of man, the more certainly inasmuch as it would have had to be performed in a great number of places. Yet no historical monument gives us trustworthy tidings of any transactions either conferring distinct recognition on media of exchange already in use, or referring to their adoption by peoples of comparatively recent culture, much less testifying to an initiation of the earliest ages of economic civilization in the use of money.2 Historically, many different goods have been used as medium of exchange. On this Mises observed that over time there would be an inevitable tendency for the less marketable of the series of goods used as media of exchange to be one by one rejected until at last only a single commodity remained, which was universally employed as a medium of exchange; in a word, money.3

There’s more than bank fraud going on here. In Washington, it’s never about what they tell you it’s about. So take this to the bank: The case of Imran Awan, Debbie Wasserman Schultz’s mysterious Pakistani IT guy, is not about bank fraud.

Yet bank fraud was the stated charge on which Awan was arrested at Dulles Airport this week, just as he was trying to flee the United States for Pakistan, via Qatar. That is the same route taken by Awan’s wife, Hina Alvi, in March, when she suddenly fled the country, with three young daughters she yanked out of school, mega-luggage, and $12,400 in cash.

By then, the proceeds of the fraudulent $165,000 loan they’d gotten from the Congressional Federal Credit Union had been sent ahead. It was part of a $283,000 transfer that Awan managed to wire from Capitol Hill. He pulled it off — hilariously, if infuriatingly — by pretending to be his wife in a phone call with the credit union. Told that his proffered reason for the transfer (“funeral arrangements”) wouldn’t fly, “Mrs.” Awan promptly repurposed: Now “she” was “buying property.” Asking no more questions, the credit union wired the money . . . to Pakistan.

As you let all that sink in, consider this: Awan and his family cabal of fraudsters had access for years to the e-mails and other electronic files of members of the House’s Intelligence and Foreign Affairs Committees. It turns out they were accessing members’ computers without their knowledge, transferring files to remote servers, and stealing computer equipment — including hard drives that Awan & Co. smashed to bits of bytes before making tracks.

Whatever option it chooses, however, the Fed will, one way or another, keep distorting interest rates. By issuing new quantities of fiat money through credit expansion, the Fed inevitably wreaks havoc on the economy's price system. It manipulates the perception of risk and flatters the value of future cash flows.

This, in turn, causes many economic and social problems. Most importantly, the Fed’s actions debase the purchasing power of the US dollar, thereby destroying much of peoples' life savings. What is more, the Fed’s policy coercively redistributes income and wealth, and it also brings about costly boom and busts.

Just to be on the safe side: The Fed is not the solution to all these problems. It is the actual cause. Whatever the US central bank will do: Be assured it will remain on course to trouble. And trouble there will be – and unfortunately so, whatever the Fed will be doing in terms of setting interest rates and dealing with the bonds it has purchased against issuing new fiat dollars.

While this is certainly a gloomy message, it might help investors to make wise decisions. Because if the Fed causes another round of trouble, it will most likely resort to even lower interest rates and issuing even more fiat money. So whatever happens short-term, there is good reason to expect that the fiat dollar — and this holds true for all fiat currencies — will lose value.

When we start seriously to itemize the causes of individual poverty, absolute or relative, they seem too diverse and numerous even to classify. Yet in most discussion we do find the causes of individual poverty tacitly divided into two distinct groups — those that are the fault of the individual pauper and those that are not. Historically, many so-called "conservatives" have tended to blame poverty entirely on the poor: they are shiftless, or drunks or bums: "Let them go to work." Most so-called "liberals," on the other hand, have tended to blame poverty on everybody but the poor: they are at best the "unfortunate," the "underprivileged," if not actually the "exploited," the "victims" of the "maldistribution of wealth," or of "heartless laissez faire."

The truth, of course, is not that simple, either way. We may, occasionally, come upon an individual who seems to be poor through no fault whatever of his own (or rich through no merit of his own). And we may occasionally find one who seems to be poor entirely through his own fault (or rich entirely through his own merit). But most often we find an inextricable mixture of causes for any given person's relative poverty or wealth. And any quantitative estimate of fault versus misfortune seems purely arbitrary. Are we entitled to say, for example, that any given individual's poverty is only 1 percent his own fault, or 99 percent his own fault — or fix any definite percentage whatever? Can we make any reasonably accurate quantitative estimate of the percentage even of those who are poor mainly through their own fault, as compared with those whose poverty is mainly the result of circumstances beyond their control? Do we, in fact, have any objective standards for making the separation?

America is at that awkward stage. It’s too late to work within the system, but too early to shoot the bastards.

Claire Wolfe, 101 Things to Do ‘Til the Revolution (1996)

I had a very memorable and thought-provoking passenger a while back that I never wrote about because while I found him fascinating, he seemed a little too political for what was always intended to be a fun blog to read and some cheap therapy for your humble driver and writer. But in light of all the scandals that have erupted lately and the EpicClusterSharknadoFuck that is ObamaCare, I have been thinking about a few things he said to me, so I’m going to commit them to paper (or pixels), if only for my own reading. So if you just want to read about moron drunks and belligerent whores, skip this post…

But if you are interested in catching up on current events that just might personally affect you soon, please read on…

It was June of 2012, when I got a call to pick up a gentleman at a resort hotel at around 4 AM going to the airport. I was a little surprised to see “Mr. Wheeler” waiting for me in front of the lobby, five minutes early, standing by his suitcase. Generally, people keep me waiting on these calls, still half asleep, late coming down, trying to get checked out, dicking around with their luggage and what not. He was in his late 50’s or early 60’s, fit, wearing a navy blazer and was obviously a business traveller, but he also had a certain posture and demeanor that made me think he was ex-military. We load up his luggage and hit the road, and I am chatting with him as we are heading to the airport. I ask what kind of work he does, and he says he is in “executive security”. I said, “Oooh, that sounds interesting… you mean like bodyguard work?”

He says, “Something like that… executive protection, security systems, personnel screening, entry/egress control, things like that. It sounds much more interesting than it really is… I spend a lot of time shuffling paper around and reading emails.”

Growth in the supply of US dollars fell again in May, this time to a 105-month low of 5.4 percent. The last time the money supply grew at a smaller rate was during September 2008 — at a rate of 5.2 percent.

The money-supply metric used here — an "Austrian money supply" measure — is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure than M2. The Mises Institute now offers regular updates on this metric and its growth.

The "Austrian" measure of the money supply differs from M2 in that it includes treasury deposits at the Fed (and excludes short time deposits, traveler's checks, and retail money funds).

Although today high levels of inequality in the United States remain a pressing concern for a large swath of the population, monetary policy and credit expansion are rarely mentioned as a likely source of rising wealth and income inequality. Focusing almost exclusively on consumer price inflation, many economists have overlooked the redistributive effects of money creation through other channels. One of these channels is asset price inflation and the growth of the financial sector.

The rise in income inequality over the past 30 years has to a significant extent been the product of monetary policies fueling a series of asset price bubbles. Whenever the market booms, the share of income going to those at the very top increases. When the boom goes bust, that share drops somewhat, but then it comes roaring back even higher with the next asset bubble.

The Cantillon Effect

The redistributive effects of money creation were called Cantillon effects by Mark Blaug after the Franco-Irish economist Richard Cantillon who experienced the effect of inflation under the paper money system of John Law at the beginning of the 18th century.1 Cantillon explained that the first ones to receive the newly created money see their incomes rise whereas the last ones to receive the newly created money see their purchasing power decline as consumer price inflation comes about.

Following Cantillon and contrary to Fisher and other monetary theorists of his time, Ludwig von Mises was the first to emphasized these Cantillon effects in terms of marginal utility analysis. With an increase in the stock of money, the cash balances of the early receivers of the newly created money increase. Correspondingly, the marginal utility they give to money decreases and the individuals in question buy either investment or consumption goods, thus bidding up the prices of those goods and increasing the cash balances of their sellers. With this step by step process, the price of goods will increase only progressively and affect both the distribution of income and wealth as well as the different price ratios.

Financialization, Asset Price Inflation and Inequality

In accordance with the Cantillon effect, inflation can increase inequality depending on the channel it takes, but increasing inequality is not a necessary consequence of inflation. If it happened that the poorest in society were the first receivers of the newly created money, then inflation could very well be the cause of decreasing inequality.

Under modern central banking however, money is created and injected into the economy through the credit channel and first affects financial markets. Under this system, commercial banks and other financial institutions are not only the first receivers of the newly created money but are also the main producers of credit money. This is so because banks can grant loans unbacked by base money. In a free-banking system, this credit creation power of banks is strictly limited by competition and the clearing process. Under central banking however, the need for reserves is relaxed as banks can either sell financial assets to the central bank in open market operations, or the central bank can grant loans to banks at relatively low interest rates. In both cases, central banks remove the limits of credit expansion by determining the total reserves in the banking system. In other words, commercial banks and other financial institutions are credited with so-called base money that has not existed before. Thus, the economics of Cantillon effects tells us that financial institutions benefit disproportionately from money creation, since they can purchase more goods, services, and assets for still relatively low prices. This conclusion is backed by numerous empirical illustrations. For instance, the financial sector contributed massively to the growth of billionaire’s wealth (see table below).

The political violence in Charlottesville yesterday was as predictable as it was futile. One person was killed and dozens badly injured, marking a new low in the political and cultural wars that are as heated as any time since in America since the 1960s.

This relentless politicization of American culture has eroded goodwill and inflamed the worst impulses in society. Antifa and the alt-right may represent simple-minded expressions of hatred and fear, but both groups are animated entirely by politics: the perception that others can impose their will on us politically. The only lasting solution to political violence is to make politics matter less.

We’ve allowed politics to invade every aspect of American life, from religion and family life to sex and sexuality, from bathrooms to ball fields to the workplace. But what has it gotten us besides identity politics on steroids? The “personal is political” is hardly the rallying cry of a free and confident nation. Even as we enjoy historically unparalleled material prosperity, we are dispirited by the 2016 election hangover and looking for scapegoats to explain the American malaise.

It’s easy to decry Antifa and its violent leftwing rhetoric. It’s easy to decry the alt-Right, neo-Nazis, white supremacists, and fascists. It’s more important to understand them as exemplars of a new political age. Progressives demanded permanent revolution; conservatives responded by becoming permanent reactionaries. And the media bias (overwhelmingly anti-right) makes things worse: one “side” becomes convinced of its moral superiority, while the other becomes convinced the fix is in.

We suspect, without knowing, that a Hillary voter is just a step or two removed from a bandanna-clad Antifa, while a Mitt Romney voter is but a few degrees removed from an alt-Right nationalist marching in the streets. This may seem farcical, but the political society promoted by Clinton and Romney encourages it. Everyone must take a side, and live with the excesses.

What we saw this weekend was a demonstration of the horseshoe effect, where both groups begin to sound and act like the other-- both illiberal, both demanding omnipotent state solutions to problems mostly created by government in the first place.

The current counter-revolution against liberty is being fought on a number of fronts in American society. One is on the college and university campuses across the country, where the ideology of “political correctness” is strangling the principle and practice of freedom of speech and the ideal of intellectual controversy and debate.

Critical to this campaign against free expression and open exchange of competing and opposing ideas is the capture of the language through which this campaign has been instigated and the linguistic characterization of its protagonists.

We need to remember and reflect upon the fact that it is through our language that we think about ourselves, our relationships to others, and the general social order in which we live and that we share with those others. Words do not simply define or delineate the names of objects, individuals, events or actions. Words also contain and connote meanings that create mental imageries, emotions, attitudes and beliefs in people that influences and colors how they see themselves and the world around them.

The Nazi Manipulation of Minds Through Language

For an example of this we may turn to Victor Klemperer (1881-1960), a German Jew who survived in Nazi Germany outside of the concentration camp system because his wife was not Jewish and she stood by and defended him throughout the Second World War. Several years after the defeat of Hitler and the National Socialist regime in 1945, Klemperer wrote a book called The Language of the Third Reich (1957). A professor of romance languages at a university in Dresden before Hitler’s rise to power in 1933, he was especially attuned to the uses and nuances of words and their contextual meanings.

He kept a detailed and truly fascinating diary about daily life during the Nazi era in Germany, the full contents of which was published under the title, I Will Bear Witness: A Diary of the Nazi Years(1995), long after he passed away. He drew upon these meticulous observations in writing The Language of the Third Reich in the 1950s. Klemperer argued that virtually everyone in Hitler’s Germany was a Nazi – whether or not they considered themselves to be National Socialists, including many of the victims of the regime (including German Jews).

Why? Because they had been captured by and had adapted in their thoughts and beliefs the ideas and ideology of their Nazi masters. They found it difficult to think about life and morality in any other way; that is, to reason in a way independent of the language of words and political phrases reflecting the Nazi conceptions of man, “race” and society. In their minds, Klemperer was suggesting, they were no longer self-governing human beings, but slaves of the regime since they thought and acted in terms of the lexicon and logic of Hitler’s National Socialism. Said Klemperer:

Nazism permeated the flesh and blood of the people through single words, idioms and sentence structures which were imposed upon them in a million repetitions and taken on board mechanically and unconsciously . . .

Language does not simply write and think for me, it also increasingly dictates my feelings and governs my entire spiritual being the more unquestioningly and unconsciously I abandon myself to it . . .Words can be like tiny doses of arsenic; they are swallowed unnoticed, appear to have no effect, and then after a little time the toxic reaction sets in after all.Klemperer said ...

I’m not a conspiracist, and because of that I am often placed in the tough position of having to defend the otherwise indefensible. The Federal Reserve is not a cabal of evil geniuses dedicated to bringing down the global order so as to create a new one with its Wall Street masters in complete control. They are instead a clown-show, a remedial class of halfwits and empty suits opining on topics they would in a just society be banished from entirely.

On occasion, however, they wander in decision far closer to the conspiracy position than is helpful for legitimate critique. One of those was their policy to discontinue M3 at a time when actually investigating M3 in full could have been globally profitable in the sense of maybe mitigating the worst aspects of 2008. Many criticized the central bank for trying to hide inflation, when in fact the Bernanke Fed was interested instead in disguising for as long as possible its own grave monetary ignorance (which could be subcategorized as hiding inflation).

In August 2014, to some mild fanfare, the Federal Reserve debuted its Labor Market Conditions Index (LMCI). The justification for such a statistic was its broad reach; as a factor model, it would seek to isolate outliers in favor (meaning greater weight) of those among its nineteen inputs that corroborated each other.

Within a few months, however, the LMCI began to suggest serious weakness that didn’t comport with the dominant everything-is-awesome narrative. Janet Yellen preferred the hope expressed in the unemployment rate, which by the middle of 2015 became that outlier statistics and therefore surely (we don’t know for sure, the guts of the LMCI have to my knowledge never been released) and increasingly isolated from the rest of the overall outputted number.

[Adapted from Rothbard’s book review of Freedom and the Law by Bruno Leoni. This review first appeared in New Individualist Review, edited by Ralph Raico.]

[In his book Freedom and the Law,] Professor [Bruno] Leoni's major thesis is that even the staunchest free-market economists have unwisely admitted that laws must be created by governmental legislation; this concession, Leoni shows, provides an inevitable gateway for State tyranny over the individual. The other side of the coin to increasing intervention by government in the free market has been the burgeoning of legislation, with its inherent coercion by a majority—or, more often, by an oligarchy of pseudo-"representatives" of a majority—over the rest of the population. In this connection, Leoni presents a brilliant critique of F.A. Hayek's recent writings on the "rule of the law." In contrast to Hayek, who calls for general legislative rules as opposed to the vagaries of arbitrary bureaucracy or of "administrative law," Leoni points out that the real and underlying menace to individual freedom is not the administrator but the legislative statute that makes the administrative ruling possible. 1 It is not enough, demonstrates Leoni, to have general rules applicable to everyone and written down in advance; for these rules themselves may—and generally do—invade freedom.

Leoni's great contribution is to point out to even our staunchest laissez-faire theorists an alternative to the tyranny of legislation. Rather than accept either administrative law or legislation, Leoni calls for a return to the ancient traditions and principles of "judge-made law" as a method of limiting the State and insuring liberty. In the Roman private law, in the Continental Civil Codes, in the Anglo-Saxon common law, "law" did not mean what we think today: endless enactments by a legislature or executive. "Law" was not enacted but found or discovered; it was a body of customary rules that had, like languages or fashions, grown up spontaneously and purely voluntarily among the people. These spontaneous rules constituted "the law"; and it was the works of experts in the law—old men of the tribe, judges, or lawyers—to determine what the law was and how the law would apply to the numerous cases in dispute that perpetually arise.

The modern bank reserve is really mathematical, and the determinant of the money multiplier unbelievably so. This version of money is not what is in the bank vault, but what is available to the bank manager to construct the most efficient and favorable quantifiable terms for each desk or division.

Where does the Federal Reserve fit in all this? It does in little more than psychology, meaning that if it can credibly promise (though nothing more than expectations, sort of a self-fulfilling prophecy if it worked) to reduce volatility, or create an economic recovery that would. That’s why 2011 was so fatal; it proved the end to what was credibility already severely strained by 2008. Private liquidity providers, which is all there really is, figured out they were on their own in an increasingly unpredictable paradigm.

At the height of the technology bubble, the median of the most reliable market valuation measures we follow (those most strongly correlated with actual subsequent S&P 500 total returns) briefly reached an apex 178% above historical norms that had been regularly approached or breached over the completion of every market cycle in history. That level of valuation implied a prospective market loss of (1/(1+1.78)-1 = ) -64% as the bubble collapsed. In real-time, I suggested, based on related measures, that prospective market losses would likely be tiered, with tech stocks losing about -83%, the S&P 500 losing more than half of its value. As it happened, the 2000-2002 collapse took the S&P 500 down by 50%, while the tech-heavy Nasdaq 100 Index lost an oddly precise -83%. Smaller capitalization stocks suffered less extensive losses due to better valuations, as they had materially lagged the large-cap indices during the late-stages of that bubble.

Attempting to “stimulate” the economy from the recession that followed, the Federal Reserve cut short-term interest rates to just 1%, provoking an episode of yield-seeking speculation, where yield-starved investors created demand for higher-yielding mortgage-backed securities, and a weakly-regulated Wall Street rushed to create new “product” to meet the demand (by lending to anyone with a pulse). At its peak, the resulting bubble took the median of the most reliable market valuation measures we follow to a level more than 95% above their historical norms, implying a prospective market loss on the order of -49% as that bubble collapsed.

I'm not a big fan of right-wing infotainment personality Tomi Lahren. I think she's a hack. On the other hand, she ought to be defended from accusations of hypocrisy in the wake of Lahren's public confession that she's still on her parents' healthcare plan.

It seems that Lahren has been spared the trouble of securing a healthcare plan on her own because Obamacare requires — among many other things — that people may continue to be included on their parents' healthcare plans until age 26. In response to Lahren revealing this fact yesterday, she was savaged in social media as a "hypocrite" for opposing Obamacare while supposedly benefiting from it personally.

Andy’s Notes: Again, I will point out that economics is a science, not a debating society. However, like most of science these days, everything is open to debate. There are no standards anywhere. Not in gold, not anywhere else. It is this kind of flim-flam, blown about by every wind of doctrine that has caused us to doubt everything except for maybe the color of the sky and the so-called ‘sanctity’ of big government. If gold was so bad, you’d think the fed – and especially the banks that own it would have nothing to do with it. Instead they own it by the trainload. Go figure. It sort of reminded us of the old economics joke – “Why is talk so cheap?” Answer – ” Because there’s an oversupply of it”. Nowadays anyone can go online and write to their hearts content about pretty much anything they want, which is great, but it has its drawbacks; the biggest of which being who is passing truth, and who is in the propaganda business. Without a solid underpinning in economics, it is almost impossible to tell the difference. Even the worst research has a few nuggets of truth. Being recipients of the quarterly journal published by the St. Louis ‘fed’ ‘The Regional Economist’, Graham and I are very familiar with Martin’s work. It is mediocre at best and always appears to be purposed towards opinion shaping. The author of the analysis below, Mike Shedlock, has his own opinions on the science of economics. We share some of them. Others we don’t. No one has a perfect analysis of any science, least of all, us. Lest we throw stones from a glass house, we encourage everyone to read, analyze, re-read, then go do your own research and form an educated, informed view of the science of economics. Don’t just take your opinions from us or an article on the Internet.

Oh, by the way, did you all see that the SEC now wants to regulate crytocurrency because they are claiming they are a ‘security’. What an oxymoron that is!

“I came of age on Wall Street when the Chairman of the Federal Reserve Board—he was William McChesney Martin—condemned even trace amounts of inflation as an economic and moral evil. In the interval of 1960-65, there was not one year in which the CPI registered a year over year rise of as much as 2%.”

Grant’s Interest Rate Observer

BTW, below is my latest comment on housing finance reform in American Banker, “Fannie, Freddie are irrelevant to a government-backed mortgage system.” I'll be participating at the CoreLogic Risk Summit next week in Dana Point. Come say hello!

We’ve all heard of fake news, but consider the growing possibility of fake or at least virtual assets. Investors face a deliberately orchestrated shortage of real investments c/o global central banks in markets such as stocks and real estate. Is there any wonder that the financial engineers of Wall Street have again begun to manufacture new derivatives leveraging the real world?

Case in point, bitcoin. The most recognized “digital currency,” bitcoin is a form of high-tech gaming instrument that fulfills just one of the traditional roles of money, but is among the world’s fastest appreciating – and most volatile-- “asset" classes.

Adherents call the limited supply of bitcoin the ultimate expression of Milton Friedman style monetarist discipline. They view the digital medium as a rational response to the fiscal and monetary chaos visible in most of the industrial nations.

There's an entire sub-industry in journalism devoted to the idea that China is poised to replace the U.S. as the "global empire" / hegemon. This notion of global empire being something like a baton that gets passed from nation-state to nation-state is seriously misleading, in my view, for this reason:

There is only one global empire: finance. China and the U.S. both exist within the Empire of Finance. Virtually every mercantile nation with access to global markets lives, works and thrives/dies within the Empire of Finance. Every nation that allows capital to flow into its economy is subservient to the Empire of Finance. Every nation with capital and debt markets exposed to (or dependent on) global financial flows is just another fiefdom in the Empire of Finance.

China has thrived within the Empire of Finance by creating more debt and at a faster rate of expansion than any other fiefdom. China has brought 20 years of future growth and income forward, and eventually that vein of "wealth" runs out as time advances into the stripmined future.

The same can be said of all nations that have borrowed heavily from future growth and income to fund consumption/GDP "growth" today.The Empire of Finance has few requirements for hegemony in its realm, but they are big ones.

According to the National Bureau of Economic Research (NBER), the institution that dates the peaks and troughs of the business cycles,

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough.1 In the view of the NBER dating committee, because a recession influences the economy broadly and is not confined to one sector, it makes sense to pay attention to a single best measure of aggregate economic activity, which is real GDP. The NBER dating committee views real GDP as the single best measure of aggregate economic activity.

We suspect that on the back of the NBER's much more general definition, the financial press as a shortcut introduced the popular definition of a recession as two consecutive quarters of a decline in real GDP. Also, by following the two-quarters-decline-in-real-GDP rule, economists don't need to wait for the final verdict of the NBER, which often can take many months after the recession has occurred.

Regardless of whether one adopts the broader definition of the NBER or the abbreviated version, these definitions are actually failing to do the job.

After all, the purpose of a definition is to establish the essence of the object of the investigation. Both the NBER and the popular definition do not provide an explanation of what a recession is all about. Instead they describe the various manifestations of a recession.

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